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Sunday, October 24, 2021

Ireland to join global pact on corporate tax after winning concessions

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DUBLIN — Ireland will join a global accord on boosting multinationals’ tax bills after winning assurances that the European Commission won’t try to push the Irish headline rate above 15 percent.

Ireland until now was the most prominent holdout from the Organization for Economic Cooperation and Development-brokered deal. For decades, the Irish had defended its 12.5 percent tax rate as an immovable cornerstone of their foreign investment strategy.

Dublin finally relented Thursday night after Finance Minister Paschal Donohoe presented the OECD’s latest draft agreement to the Cabinet. Donohoe then announced that Ireland would join more than 130 nations that already accept the OECD plan when they meet Friday.

Donohoe said Ireland could accept the altered OECD text because it no longer binds signatories to collect “at least” 15 percent from globally structured firms. That figure is now fixed, he said.

The news came right after Estonia, another hold-out, announced it would back the deal.

“We have secured the removal of ‘at least’ in the text as we sought. Some countries wanted higher minimum tax rates, and our position moderated those ambitions and views. This provides certainty in the agreement,” Donohoe told a press conference.

The shift means Ireland has committed to charge 15 percent, rather than its prevailing 12.5 percent, starting in 2023 on the profits of more than 1,500 subsidiaries of mostly American multinationals as well as 56 Irish-owned multinationals. Together, these companies employ nearly a quarter of the workforce and generate half of Ireland’s income taxes.

The Irish government had feared that the “at least” qualifier would give European partners long-sought leverage to pursue a “harmonized” tax rate higher than 15 percent across the EU, where many nations have headline rates topping 25 percent.

Finance officials said Ireland had achieved its two other key demands in side deals with the Commission, clinched in talks involving Donohoe, Trade Commissioner Valdis Dombrovskis, Competition Commissioner Margrethe Vestager and Economy Commissioner Paolo Gentiloni.

One concession will permit Ireland to keep charging its small and medium-sized enterprises the existing 12.5 percent rate on profits. This affects 160,000 firms employing 1.8 million people in Ireland, including companies with annual turnover of up to €750 million.

The second will allow multinationals to keep pruning their Irish tax bill by tapping write-offs that incentivize research and development spending. As a result, multinationals that maintain qualifying R&D investments will keep paying less than 15 percent in Ireland.

The Irish shifted, in part, after the main lobbying group for U.S. multinationals recommended they sign up — as long as “at least” was dumped from the document.

“Removing ‘at least’ is really important,” said Mark Redmond, chief executive of American Chamber of Commerce Ireland, whose board includes Ireland country directors from Facebook, Google, Intel, Johnson & Johnson, JP Morgan and Pfizer.

“Would you sign a contract to buy my house for ‘at least’ 400,000 euros, without any safeguards? I don’t think so,” Redmond said. “So what’s been achieved here is not just good for Ireland, but good for certainty in global tax.”

Ireland’s treasury chief, Conor O’Kelly, told a parliamentary committee Thursday that multinationals viewed a potential hike in Irish taxes on profits above the mooted 15 percent minimum as “their number one concern.”

Ireland’s top tax consultants lauded the outcome as the best possible for Ireland, ensuring it would keep a competitive rate versus most European peers while shedding its negative status as a tax haven.

“You won’t have Ireland to kick around anymore under the ‘tax haven’ heading. We never were. But we certainly aren’t now,” said Feargal O’Rourke, managing partner of PwC Ireland, who advises many U.S. companies on minimizing their tax bills.

O’Rourke, who helped to formulate complex tax-avoidance strategies exploiting different rules in the U.S., Ireland, the Netherlands and the Caribbean, called Donohoe’s ability to win European Commission support for keeping the 12.5 percent rate intact for the vast majority of Irish firms “a real rabbit out of the hat — a big win for Ireland.”

The finance spokesman for Ireland’s main opposition party, Pearse Doherty of Sinn Féin, said the government had no choice but to join the OECD deal because the nation’s prevailing policies had encouraged “huge, aggressive tax planning” that “tarnished our reputation internationally.”

Ireland’s corporation tax collections keep surging, driven in part by royalty payments and write-offs on multinationals’ domiciling of their intellectual property — including, for example, Apple’s iPhone designs — in Ireland. Such profits are supposed to be spread more evenly across the globe as part of the OECD effort.

The Department of Finance has forecast that the exchequer could lose €2 billion annually by 2025 as a result, while a confidential memo to the Cabinet has cautioned that the hit could be twice as hard. Yet Irish forecasts of corporation tax collections have proved chronically pessimistic, and soon Ireland can start to collect 2.5 percentage points more.

For now, Ireland’s corporate tax haul keeps achieving record highs: €11.8 billion last year, and more than €8 billion this year — €1 billion more than the government expected. A top collection month, November, is still to come.

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